Role of Financial Management Flashcards
Strategic Role of Finance (Management)
The planning and monitoring of a business’s financial resources, to achieve its strategic goals
Strategies to Manage Financial Resources:
Sourcing finance
Preparing budgets & forecasting finances
Preparing financial statements
Maintaining sufficient cash flow
Distributing finance to other key business functions
What are the 5 Objectives of Financial Management?
Profitability
Growth
Efficiency
Liquidity
Solvency
Profitability
To maximise a business’s profits
Strategies is to carefully monitor revenue and expenses
Revenue - Expenses = Profit
Growth
Increase the size (of the business)
By effectively utilising financial resources
Internal/Organic Growth
A type of growth that expands the business by increasing sales or marketing
External/Acquisitive Growth
A type of growth that expands the business by merging, takeover or acquiring other businesses
Efficiency
Minimising costs, by using the least amount of assets to maximise profit
Liquidity
A business’s ability to meet financial obligations in the short-term
If a business has insufficient cash, what does it mean?
The business cannot cover its short-term obligations (current liabilities)
If a business has excessive liquidity, what does it mean?
A business is missing opportunities to use the money to generate profit, such as expanding the business
Solvency
A business’s ability to meet financial obligations in the long-term
Operational Financial Objectives
A short-term financial objective that is achieved daily or weekly
Tactical Financial Objectives
A short-term financial objective that is to be achieved within 1 - 2 years
Strategic Financial Objectives
A long-term financial objective that is aimed to be achieved over 5 years
